Spain's Sanchez faces first big crisis as allies reject budget plan

MADRID (Reuters) - Spain’s Prime Minister Pedro Sanchez faced his first crisis on Friday when political allies pulled support for his government’s budget in a move that cast new doubt over the country’s political stability.

Spain's Prime Minister Pedro Sanchez delivers a speech during a parliamentary session to report on last week's European Council meeting in Madrid, Spain, July 17, 2018. REUTERS/Susana Vera

Only 88 members of parliament voted in favour of the minority Socialist government’s proposal to soften the deficit-cutting path, while 173 voted against and 86 abstained. Three deputies did not take part to the vote.

Sanchez’s government, which controls only 84 seats in the 350-seat parliament, cannot pass the full budget without the parties which brought him to power in June, when they backed a no-confidence motion against his conservative predecessor.

If he fails to do so, the future of his fragile, two-month-old administration could come into question.

The government met with some of the seven parties that backs it in parliament on Thursday at the prime minister’s office, but the positions were too far away for a deal to be reached, sources briefed on the talks said.

One disagreement related to the Socialists’ resistance to opening an inquiry into media reports of offshore business dealings by the former King Juan Carlos, four sources said.

The king’s office declined to comment on the reports to Reuters, which could not independently verify them.

One of the sources said Podemos also pushed for softer deficit targets and higher spending in the budget for the euro zone’s fourth-largest economy, which the government opposed.

Sanchez had acknowledged late on Thursday he could lose the vote, though he would stick to his position of not bringing forward the next national election due mid-2020.

“Those of the groups that vote against the deficit path will be voting against repairing the welfare state, improving public health and making progress in education,” Sanchez told a news news conference with French President Emmanuel Macron.

END OF HONEYMOON

The parliamentary defeat is a big blow to Sanchez, who had enjoyed until now a relative political honeymoon.

The new premier has won kudos from the opposition, the press and voters by appointing a cabinet with a majority of women.

He also pleased left-wing voters by appointing a new head to public broadcaster RTVE, making political overtures to Catalan separatists, offering to take drifting migrant ship Aquarius and pledging to remove the remains of Spanish dictator General Francisco Franco from a state-funded mausoleum.

Support for his government has jumped as a result with opinion polls, showing the Socialists would likely win a national election if it was held now.

While Sanchez has dismissed calling a snap election, sources close to him said this possibility should not be fully ruled out if the opposition and junior allies keep blocking the government’s actions in parliament.

Sanchez replaced Mariano Rajoy as prime minister after the People’s Party (PP) leader was ousted in a no-confidence vote in June, his authority undermined by a corruption scandal involving PP officials and a perceived failure to quell an illegal independence drive in the northeastern region of Catalonia.

The PP picked a new leader on Saturday who pledged to challenge Sanchez and is unlikely to help him pass the budget or any other law.

Catalonia’s main political force, the PdeCat of self-exiled former regional chief Carles Puigdemont, also chose a new head who backs hardline separatist positions rather than the dialogue offered by the Madrid government.